Wanted: More Corporate Canada Support for Startups

I think this type of view is really misguided and underlines the Canadian view point that money is all created equal and that if we just had more money everything would be better.

Companies should do what companies are created to do which is maximize value for their shareholders. If the activity is not focused on increasing profits directly (not through some “insight and knowledge gained from backing entrepreneur”) it will eventually be eliminated. Size of company has no bearing here. If the insight and knowledge argument held water then all sizes of companies should engage in the investment in other companies turning everyone into a mutual fund.

Early stage companies need predictable and committed sources of financing. The more predictable and the more committed (over the long term) the sources of financing are the less management focus will be applied to worrying about replacing sources of financing and more focus will be placed on what you would like to see which is growing the business. Strategic focused corporate capital is not predictable because its not measured by financial gain.

The last effect of incenting more corporate strategic capital into the market will be to drive out of the system financially focused professional early stage financing sources. The two do not have the same objectives and will work against each others interest. Smart capital will move to places, markets, and verticals where they have alignement of interests and they have the maximum probability of providing an acceptable rate of return for their investors.

What is needed in the system is the presence of the “strategic”. These are the companies that foster the innovation through working with early stage companies either by providing them insight into what valuable problems need solving, or by working with early stage customers products. All of the activity should be measured on size of the need and the value of the solution. In this way, early stage companies will solve real problems rather than fabricated problems and in doing so create real value that should be compensated with real revenue. Along the way, the startups also increase their probability of finding exit opportunities as companies feel more comfortable buying companies they know and understand as opposed to companies that they read about in an investment banker’s deck. Successful innovation markets have this dynamic. Its not clear that Canada has.

Financing is an issue, but advocacy should be focused on getting more high quality capital that is financially focused, not just any capital.

Thanks Mark for bringing attention to the issue of financing startups and using corporate capital to stimulate the area. It is necessary for a few reasons, including; there is not enough capital or attention in Canada in the startup space. It is worthwhile having intellectual, social and financial capital invest in the startup space in Canada to help create something of a foundation that can then lead to a sustainable ecosystem. Keep up the great work and engage us all in a valuable conversation.